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Friday, 30 June 2017

Indian Accounting Standards Converged with IFRS (Ind AS)

Ind AS are set of accounting standards notified by Ministry of Corporate
Affairs (MCA), converged with International Financial Reporting Standards
(IFRS), these accounting standards are formulated by Accounting Standard Board
(ASB) of Institute of Chartered Accountants of India (ICAI).

Convergence means alignment of the standards of different standard setters with
a certain rate of compromise, by adopting the requirements of the standards
either fully or partially. Indian Accounting Standards are almost similar to
IFRS but with few carve outs so as to make them suitable for Indian
Environment.

On 2 January 2015, the Press Information Bureau, Government of India, Ministry
of Corporate Affairs (MCA) issued a note outlining the various phases in which
Indian Accounting Standards converged with IFRS (Ind AS) is proposed to be
implemented in India, for Companies other than Banking Companies, Insurance
Companies and NBFCs.

The application of Ind AS is based on the listing status and net worth
of a company. Ind AS will first apply to companies with a net worth equal to or
exceeding 500 crore INR beginning 1 April 2016. Listed companies as well as
others having a net worth equal to or exceeding 250 crore INR will follow 1
April 2017 onwards

Need for Change

The only
thing which will be received from such transition is common set of accounting
standards. The benefits of having the common standards for financial reporting
are the reasons which attract this transition.

These are
as follows,

a. Better
Comparability-By following a common set of standards, will help the
stakeholders to compare the organisations globally, i.e. to create an apple to
apple comparison.

b. Better
Transparency- The users of accounts will be benefited by this as, same
accounting standards will help to them understand the fundamentals of the
organisation which will generate better transparency.

c. Many
companies having subsidiary or Holding company in different countries are
required to follow dual set of accounting standards, local standards on one
hand & global standards on the other hand. The transition will be helpful
in saving time & cost on the finance department. For example, Swiss pharmaceutical
giant ROCHE group, which operates in more than 100 countries, likely to save
more than $100 million through Convergence.

d. Attract Foreign Investment- Since the
investors can compare with other organisations globally, it will help them to
take investment decision, at the same time it will help the organisation to
present their financial position in more efficient way to the world, in a
language that all can understand.

e. Due to transition many companies will be
attracted towards India, for investing, for setting up subsidiary, etc., which
will result in increase in employment opportunities.

f. Globalization-Globalization can be
understand at three levels i. World Trade- Smooth trade can be achieved. ii.
Listing, Securities Markets etc. - Listing of Securities on international Stock
Exchanges will be eased. Cross border flow of investment will lead to economic
growth. iii. Stakeholders- Stakeholder can easily take the decision in regards
to the organisation.

g. Cost Saving - Saving of time and money in
planning and executing of accounting and auditing. - Costs involved in the
access to the capital market are expected to reduce. - Labour Cost-In
developing countries, the labour cost is cheap, but capital availability is
difficult. By convergence the cost of capital will reduce & its
availability will also be eased.

Adoption
or Convergence From the above discussion one may wonder why to introduceInd AS
instead of following IFRS as it is. Some countries had accepted the IFRS as it
is instead of convergence, Question is why not India?

One of
the main reason is any changes in the IFRS would have impact on books of Indian
Companies; it would be hard for companies to adopt or cope up with the IFRS as
and when amended.

At the same time, India is multi regulator
nation. In India there are many regulators like, Companies Act, Income Tax Act,
Securities Exchange Board of India (SEBI), Insurance Regulatory &
Development Authority (IRDA), and Reserve Bank of India (RBI) etc.

To
welcome the change in IFRS the respective Rules and Regulation must be amended
accordingly, which can be time consuming. If the changes in IFRS are not in
consensus with the Rules and Regulation, then there will be chaos in the
corporate reporting. So Introduction of Ind AS is a way to buy some time to
analyse the situation or the change with a view to take necessary action by MCA
as it thinks fit.

Hence, substantially similar to the IFRSs, the
Ind AS have some carve outs to ensure that these standards are suitable for
application in the Indian environment In a nut shell, Ind AS can be referred as
“International Dish with Indian Flavour”

Conclusion:

As the convergence work is still going on, the practical application of IFRS
converged standards are yet to come up. As such, problems in the post
application periods cannot be denied and moreover, the types of such problems
cannot be forecasted for certain, at this point of time. Hence, preparation of
IFRS-converged standards is a challenge before the preparers both in India and
outside.

If I
could leave you with one thought, it will be that, I am one of those dreamers
who would like to see, by the year 2020, India becoming an important financial
hub like Hong Kong, New York or London. To make that happen, there are several
important steps to be undertaken, one of them is having account standards that
are exactly same as International Standard. Ind AS is no more an option; it is
the need of the hour.

Thursday, 22 June 2017

IMPACT ON HOUSEHOLDS BUDGETS UNDER GST TAX RATES

It is yet unclear what items in your household budget are likely to
cost more, and which will be cheaper. The GST Council has decided on
four main tax rates, 5%, 12%, 18% and 28%. The highest tax rate is more
than what the industry was anticipating.

According to Finance Minister Arun Jaitley,
items that are used by the aam aadmi, that is which qualify for mass
consumption, will be taxed at 5%. Around 50% of the items that form part
of the consumer price index basket (such as daily food consumption
items) will not be taxed at all under GST. The tax rate of gold is yet
to be decided, the Finance Minister said. Jaitley has also said that
several items will be transferred to the 18% GST rate category from 28%.

Impact of GST rate on Domestic Appliances and Electrical machinery

Handlooms used in the handicraft
industry are the only machinery charged at NIL rate of tax under GST.
Most of the electrical machinery are charged tax at a similar rate to
the rate declared under GST. It is expected that the prices are going to
stay neutral for the end consumer of the above electrical machinery.
Although the manufacturers using electrical machinery will benefit from
the availability of input tax credit on the services used which was not
available under VAT.

The rate for each household electronic
appliance like the fridge, washing machine, vacuum cleaner etc is fixed
at the rate of 28% under GST. It is likely that the increase in the tax
burden by 2-3% under GST would be passed on to the final
consumer.Placement of the basic appliances such as fridge and washing
machine under 28% slab shows that electronic appliances are still
considered as a luxury by our government.

Manufacturers of such household
electronic appliances like Samsung, Godrej, Voltas etc may not be able
to provide any benefit of GST to the end consumer due to the tax rate of
28%. Clarifications are also required for the treatment of the current
tax exemptions or deductions provided by the different states.
Manufacturers in Mumbai would be the only one’s getting relief under GST
as they are charged octroi at the rate of 5% after the other taxes(
average 25-26%) on household electronic appliances.

Companies
said this may not lead to much price drop except in small screen televisions
since there is significant increase in television panel prices globally and
commodities like steel. "The marginal drop in taxes will have no big
impact since the difference in rates is just marginal," said Godrej
Appliances business head Kamal Nand.

Final GST Slab rates are :

Zero rated items : Foodgrains used by common people. ( A sigh of relief…hmmm…)

12% and 18 % Rate : Two standard rates have been finalised as 12% and 18%.

28% Rate :
White goods like Air conditioners,washing machines,refrigerators,soaps
and shampoos etc.that were taxed at 30-31% shall be now taxed at 28%.

Demerit goods like tobacco,tobacco products,pan masala,aerated drinks and luxury cars shall be charged at the highest rate of 28%.An additional cess on some luxury goods shall also be imposed.Services that are now taxed at 15% shall be taxed at a higher rate of GST @ 18%. Various goods have been classified to fit into the above categories.

It is infact too early to predict the actual impact of GST on different sectors.

Conclusion

It is expected that due to the
expected inflation and rise in the tax rate would increase the price of
the television, fridge, vacuum cleaner or air-conditioners. The price of commercial electrical machinery is expected to stay neutral.

Tuesday, 20 June 2017

Composite Scheme under Goods and Service Tax

The Composition Scheme under GST will be applicable to persons whose taxable is less than 50 lacs. The GST Composition Scheme is aimed at small business people with low turnover. Under a Composition Scheme, the persons liable to pay GST are exempted from maintaining Books of Accounts. Rate of tax under the Composition Scheme shall be the rate as prescribed, but not less than one percent of the turnover during the year.

Composition options contain conditions (varies from State to State) such as:

(a) such dealer maintains separate account of each type of his business;
(b) the total turnover is limited/ in some cases not limited;
(c) the amount payable by way of composition is lower;
(d) dealer has to exercise the option for the whole year;
(e) dealer would not be able to avail the credit of inputs;
(f) in some States he cannot collect tax from his customers.

Composition Levy under GST

Section 9 of the CGST/SGST Act:

The Proper Officer would permit a registered taxable person whose aggregate turnover in the previous year was less than Rs. 50 lakhs to pay:

• Not less than 2.5% of the turnover in a State, in case of a manufacturer,
• Not less than 1% in other cases (in case of others i.e. traders),

Conditions:

a. A service supplier cannot opt for this scheme.
b. Permission will not be granted to a person, who makes any supply of goods, which does not attract GST levy.
c. Such a person should not have Inter-State supply of goods.
d. He should not make supply through an e-commerce operator, who is required to collect tax at source in terms of section 56.
e. The aggregate turnover should be upto Rs. 50 lakhs.
f. He should not avail any credit.
g. Permission would be refused to a manufacturer of notified goods upon recommendation by GST Council.
h. The scheme should also be opted by all taxable persons having the same PAN as held by the taxable person.

Salient features:

1. The option of composition levy is available to a registered taxable person but it may make him less competitive when dealing with businesses due to the restriction on availing and passing on the tax burden.
2. Tax payable under reverse charge mechanism would still be payable.
3. Permission of the proper officer is required for availing the option of composition scheme. This could pose difficulties considering the past experience.
4. If the proper officer has reason to believe that such a person is not eligible for this scheme then he may impose penalty. This would be in addition to the tax payable under other provisionsvand interest liability.
5. In such an event admissibility of credit is not clearly spelt out in the proposed provisions.

Benefits of scheme:

The advantages or benefits of the scheme should be examined should be analyzed on a case to case basis. Following are the illustrative benefits:

• It is simple to understand.
• The person opting for the scheme has to file returns and make payments on quarterly basis.
• Cost saving benefits would accrue.
• Minimum records are required to be maintained as compared to a regular assessee.
• It is more suitable for making direct supplies to consumer/customer.

The major disadvantage is that no GST can be charged in the invoice and credit chain is lost.GST paid on inputs will become a cost and hence it is difficult to sustain competition in the industry, considering the high tax rates, which would prevail in GST regime.

Transitional provision- Section 172;

As per this transition provision, credit of eligible duties and taxes on inputs held in stock is allowed to a taxable person switching over from composition scheme voluntarily or on crossing of Rs. 50 lakhs. The conditions prescribed are (i) such inputs/goods are intended for making taxable supplies under GST law; (ii) he is eligible for input credit on inputs under the GST law; (iii) has tax paid/ prescribed documents which were issued not earlier than one year before the effective date of GST law (iv) the eligible credit should be calculated in a prescribed manner.

Definitions:

a. Aggregate turnover.
Section 2(6) of the CGST / SGST Act, 2016 ‘aggregate turnover’ means ‘value of all (taxable, exempt and export supplies and inter-State supplies) – (Taxes + Value of inward supplies + Value of supplies taxable under reverse charge) of a person having the same PAN and has to computed on all India basis for the relevant financial year.
b. Integrated Goods and Services Tax (IGST) – Section 2(14) of IGST Act
IGST means the tax levied under the IGST Acton the supply of any goods and/or services in the course of inter-State trade or commerce.

Impact

• Composition dealer is not eligible to avail the credit of input tax paid.
• He is not entitled to effect inter-state supply of goods.
• Composition dealer is not eligible to collect tax.
• It would be applicable for all the business verticals / registrations which are separately held by the person with same PAN.

Relaxation in Procedures:

• Tax & return period would be on quarterly basis.
• Due date for payment and filing of return would be in month succeeding the particular quarter.
• It is beneficial only for those who are making direct supply to end consumers/customers.

Conclusion:

The restrictions imposed by the scheme do not make it an attractive alternative for the tax payers. Further the tax payers should take a measured decision by weighing the pros and cons of opting for the scheme including financial viability.

The overall Composite Scheme has remained the same along with its concepts, when compared to old VAT and GST Law. In the first GST Draft, the Composition Scheme was deleted but was again inserted in the draft bill that was approved in the parliament.